Pennsylvania Legislature passes 'historic' pension bill

The House's 143-53 vote Thursday morning pushes the bill to Gov. Tom Wolf 's desk for his signature. Wolf's office has said he will sign it.

By Steve Esack / The Morning Call

HARRISBURG -- The Pennsylvania Legislature on Thursday gave final approval to a bill to drastically change retirement benefits for most state employees and all school employees hired after 2018.

The House's 143-53 vote Thursday morning pushes the bill to Gov. Tom Wolf 's desk for his signature. Wolf's office has said he will sign it in coming days.

The measure seeks to reduce the long-term risk associated with taxpayers bailing out the state's two debt-ridden pension plans in bad economic times.

The bill would move affected workers from a taxpayer-funded pension plan with guaranteed retirement benefits to a hybrid" plan. Under it, about half the worker's pension benefits would be determined by a 401(k)-style plan that fluctuates with the markets, reducing taxpayer exposure by more than 50 percent. The worker could elect to have all his or her retirement benefits placed into a 401(k).

Current workers and retirees are not affected by the bill, nor is the $76 billion worth of debt tied to their promised pension benefits.

That debt has been crushing the state's ability to pay its annual bills since 2011, leading to an estimated cumulative $3 billion deficit by the June 30, 2018, end of the next fiscal year.

Supporters hailed Senate Bill 1 as historic because it carries an important component — risk reduction — over the next 15 to 30 years when new workers (having only half a guaranteed pension) replace the current workforce.

One scenario outlined in the bill's financial analysis showed a savings of $4.2 billion in long-term cash flow.

Another scenario showed taxpayers would pay $1.3 billion less in pension costs in the annual state budget over the same period.

"It is historic legislation, not just for Pennsylvania but all across the country," said Rep. Warren Kampf, R-Chester, who does not take the state pension. "This is a risk shift. What is the risk? The risk is the thing that is happening to us and all of the people of Pennsylvania and will happen in the future."

This bill carries provisions that Democrats do not like and Republicans do not like, said Rep. Frank Dermody, D-Allegheny, minority party leader. But that's what happens in compromise and consensus, two things not witnessed in Harrisburg in several years, he said.

"This is a fair benefit for future workers and reduces risk to taxpayers," Dermody said.

The bill's opponents called it an indictment of weak-kneed lawmakers unwilling to tackle the debt the Legislature made worse by giving retroactive pension benefit bumps for every year of employment for themselves, public workers and retirees in 2001 and 2002, respectively.

The bill's financial analysis also pointed to a possible long-term cost, not a savings. That scenario shows a potential net cost of $580 million to the unfunded liability if the pension systems fell short of their assumed rate of investment returns of 7.25 percent.

People say we are making history, but are we repeating history by not addressing the debt, Rep. John McGinnis, R-Blair, asked in a floor speech. That debt, he said, was created by the "malfeasance" of past lawmakers who boosted their retirement plans, helping to turn the pension plans' $15 billion surplus into a $46 billion deficit between 2001 and 2010.

"First we stole from them (taxpayers) and misspent their funds and with this bill we will continue to grow the massive debt," McGinnis said.

If it became law, the bill would go into effect in 2019, but not for everyone.

All new school employees would join the new plans. The bill would exclude troopers, corrections officers and other law enforcement officers who do not make or receive Social Security payments.

Also excluded are current lawmakers and judges; they would have the option to join. Newly elected lawmakers and judges would be mandated to join the new plans.

The exclusions create a class of "special workers" who can't be touched at the expense of everyone else, complained Sen. Lisa Boscola, D-Northampton, before voting for the bill.

Retirement benefits would drop by $7,327 to $33,173 for new school workers and by $6,452 to $34,048 for new state workers. Those figures are for a 65-year-old who retired with 35 years of service, average annual final salary of $60,000.

Provides teachers and state workers hired after 2018 with a pension that's half guaranteed benefits, half 401(k)-style investments.
Reduces retirement benefits for new school employees about 18 percent, and new state workers about 16 percent.
Makes no changes to the pensions of employees hired before 2019.
Fails to address the pension systems' combined $76 billion unfunded liabilities.

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